American Wealth Plunges

American Consumers Newsletter

by Cheryl Russell, Editorial Director, New Strategist PressJuly 2012

American Wealth Plunges

IN THIS ISSUE:

1. Hot Trends: ELVIS HAS LEFT THE BUILDING, FEWER SHOPPERS AND MORE ON TIME USE, THE RISE OF STUDENT DEBT, SPENDING: THE TOP 10 LIST2. Q & A: YOUNG ADULTS: HOW ARE THEY DOING?3. Cool Links: 2011 BIRTHS, 2011 POPULATION ESTIMATES, 2011 YOUTH RISK BEHAVIOR4. New Updated Reference Tools: DEMOGRAPHICS OF THE U.S., THE MILLENNIALS, GENERATION X, THE BABY BOOM, and OLDER AMERICANS

The latest update on the wealth of American households is nothing but bad news. Median household net worth was a lowly $77,300 in 2010, according to the Federal Reserve Board, which fields the Survey of Consumer Finances every three years. Between 2007 and 2010, median household net worth fell 39 percent, after adjusting for inflation.

Elvis Has Left the Building

By Elvis, I mean the wealth of the middle class. Sure, we knew things were bad. But until the latest net worth data were in our hands, we could at least hope Elvis would return to the stage. That hope is gone.

The loss of family wealth is a problem that will be passed down (or, rather, not passed down) from one generation to the next. The loss of wealth destabilizes the middle class because it removes the safety net required to remain there. That safety net is the ability of families to lend (or give) a helping hand to family members when they encounter inevitable (and, according to research, increasingly frequent) economic shocks–medical bills, car repairs, unemployment, etc. The 2010 wealth data show three gaping holes in the safety net.

1. The oldest Americans are now the wealthiest. Median net worth in 2010 peaks among householders aged 75 or older, at $216,800. This is a change from 2007, when median net worth peaked in the younger 55-to-64 age group. By rights, 55-to-64-year-olds should have the greatest net worth, spending it down in retirement. But the net worth of householders aged 55 to 64 was just $179,400 in 2010, much lower than their $266,200 net worth in 2007–a 33 percent decline after adjusting for inflation.

2. Median household net worth has fallen to the 1992 level. That’s a bad sign because, in that year, the large baby-boom generation was aged 28 to 46, with the oldest entering their peak-earning years. The small Depression-era cohort was then at the age of peak wealth accumulation prior to retirement. At that time, the demographic structure of the population wassuppressing median net worth. In 2010 in contrast, the baby-boom generation is at the supposed age of peak wealth accumulation. The demographic structure of today’s population should be boosting net worth. With net worth at the 1992 level despite the demographics suggests worse is to come as boomers age.

3. Younger householders cannot rescue us. Householders aged 35 to 44 lost most of their wealth between 2007 and 2010, their median net worth falling by 54 percent after adjusting for inflation, to just $42,100. Householders under age 35 saw their already small nest egg fall by 25 percent during those years, to $9,300. Home equity is the foundation of middle class wealth, which is why the drop in home values is the single biggest factor behind the decline in net worth. The dire financial straits of householders under age 45, coupled with the desire of millions of boomers to downsize, will depress housing prices for years to come.

Fewer Shoppers

Newly released statistics from the 2011 American Time Use Survey provide a glimpse of how the Great Recession has changed daily life. Those changes, in turn, have taken a toll on the economy. The decline in shopping is a good example.

Women are the primary shoppers, and fewer women shopped in 2011 than in 2007. On an average day in 2011, 46.6 percent of women aged 15 or older shopped in a store, by telephone, or online. This compares with a larger 48.2 percent of women who shopped for goods and services on an average day in 2007. Do the math and that’s 2 million fewer shoppers per day than would have been in the marketplace if the percentage who shopped had remained the same.

To add insult to injury, the women who shopped on an average day in 2011 spent less time doing so–only 1.77 hours in 2011 versus 1.92 hours in 2007.

More Changes in Time Use
If you compare the results of the 2011 American Time Use Survey with those from 2007, before the Great Recession, you can glean the many ways in which life has changed…

Fewer men at work: Only 50 percent of men aged 15 or older worked on an average day in 2011, down from 54 percent in 2007.

More sleep: With more people out of work, average sleep time increased from 8.57 to 8.71 hours per night.

More home cooking: The percentage of people who participated in food preparation and cleanup on an average day grew from 51 to 53 percent.

More schooling: The percentage of people aged 15 or older who attended classes or did homework on an average day climbed from 7.9 to 8.4 percent.

Fewer watching TV: The percentage of people who watch TV on an average day fell by more than 1 percentage point between 2007 and 2011–from 79.5 to 78.3 percent. Among those who watched TV on an average day, however, viewing time grew from 3.30 to 3.51 hours.

Fewer caring for kids: As births fell from their 2007 peak, the share who care for household children on an average day fell by a full percentage point–from 21.8 to 20.8 percent.

The Rise of Student Debt

The percentage of households with education loans has more than doubled over the past two decades, according to new numbers from the Survey of Consumer Finances. In 2010, nearly one in five households (19 percent) had outstanding student debt, up from 9 percent in 1989. Among households with student debt, the median amount owed climbed from $5,100 to $13,000 during those years, after adjusting for inflation.

The numbers are worse for householders under age 35. Fully 40 percent had education loans in 2010, up from 17 percent in 1989. Young householders were once far more likely to have mortgage debt, vehicle loans, or credit card debt than student loans. Not anymore. The 40 percent of householders under age 35 with education loans surpasses the 34 percent with mortgage debt, the 32 percent with vehicle loans, and even the 39 percent with credit card debt.

Spending: The Top 10 List

The ten items on which the average household spends the most were the same in 2010 as a decade earlier, according to my analysis of Consumer Expenditure Survey data, although the order has changed. Spending trends during the decade for the top ten items ranged from a 47 percent increase (health insurance) to a 63 percent decrease (federal income tax), after adjusting for inflation.

Here is the 2010 Top 10 List in rank order, along with how much the average household spent on those items and the (inflation adjusted) percent change in spending since 2000…

1. Deductions for Social Security: $3,903 (+44%)

2. Groceries: $3,624 (-5%)

3. Mortgage interest: $3,154 (+1%); or Rent: $2,773 (+11%)

4. Vehicle purchases: $2,588 (-40%)

5. Gasoline and motor oil: $2,132 (+30%)

6. Restaurants: $2,081 (-6%)

7. Health insurance: $1,831 (+47%)

8. Property tax: $1,814 (+26%)

9. Electricity: $1,413 (+22%)

10. Federal income tax: $1,136 (-63%)

The average household spent $48,109 in 2010, almost identical to the $48,176 it spent in 2000, after adjusting for inflation. Some notable changes in the rankings of other items: Cell phone service surged from 66th to 14th place; College tuition climbed from 24th to 16th place; and Cable television service rose from 28th to 18th in the rankings.

Not good, according to two Heldrich Center surveys. Whether they have a college degree or not, young adults are struggling.

The Heldrich Center survey of young adults who graduated from college between 2006 and 2011 found only 51 percent currently working full-time. Another 20 percent were in grad school. Among those with full-time jobs, their median salary was $32,000. The 52 percent majority was being paid by the hour, and 43 percent said their job does not require a four-year college degree.

At graduation, the 55 percent majority was in debt, owing a median of $20,000. Among young adults in graduate school, the situation was worse. They owed a median of $30,000 in student loans. Debt is transforming the lives of the young adults. Among recent college graduates with debt, 40 percent said they had delayed a major purchase such as a car or house. A hefty 27 percent had to move in with parents or other family members to save money.

High school graduates are doing even worse. The Heldrich Center also surveyed young adults who graduated from high school between 2006 and 2011 and did not have a college degree nor were enrolled in college full-time. The findings are abysmal. In a nutshell, 60 percent of these recent high school graduates are living with their parents or other relatives. Only 27 percent have a full-time job. Those with jobs earn a median of $9.25 an hour. The 56 percent majority thinks their generation will have less financial success than the generation before them.

The broader implication: Americans are in trouble, and the trouble is spreading from the bottom up. The middle-class comfort enjoyed by older generations is a relic of a more prosperous past and will not last.

Fewer than 4 million babies were born in the United States in 2011, according to provisional estimates released by the National Center for Health Statistics and available at this link. This is the first time that the annual number of births has fallen below 4 million since 1999. In 2011, 3,961,000 babies were born–1 percent fewer than the 4,000,279 births of 2010 and 8 percent below the all-time high of 4,316,233 births in 2007. The 2011 fertility rate fell to an all-time low of 63.4 births per 1,000 women aged 15 to 44.

The minority majority has arrived: The first cohorts of Americans in which minorities are the majority have appeared on the scene, according to the Census Bureau’s 2011 estimates of the population by age, race, and Hispanic origin, available at this link. Among the nation’s infants and 1-year-olds, non-Hispanic whites are less than half the population, marking a symbolic turning point in the nation’s identity. Overall, 63.4 percent of the U.S. population was non-Hispanic white on July 1, 2011, down from 63.8 percent one year earlier.

The new fourth edition of Demographics of the U.S.: Trends and Projections is a unique source that documents the many important socioeconomic trends from 1950 through the first decade of the 21st century. The 4th edition includes 2010 census data as well as comprehensive coverage of historical statistics, including single-year data on many topics such as births, school enrollment, homeownership, employment, living arrangements, and geographic mobility. New to this edition is a look at household spending with an analysis of trends before and after the Great Recession.

Each of the four volumes in the just-updated American Generations Series provides an in-depth look at the demographic and lifestyle data most important for researchers who want to understand how each generation is changing and what to expect from them in the future. New to these editions are all-important 2010 census population data, the latest homeownership rates, trends in household spending and wealth since the Great Recession, and labor force statistics with projections to 2020.

The new fifth edition of The Millennials: Americans Born 1977 to 1994 provides a demographic and socioeconomic profile of the generation that is aged 18 to 35 in 2012. Included in the book is a special section about the iGeneration, Americans under age 18 and their parents.

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The new seventh edition of Generation X: Americans Born 1965 to 1976 tells the story of the small but vital generation spanning the ages of 36 to 47 in 2012. No generation has been hit as hard by the Great Recession as Gen Xers. This reference shows you how their socioeconomic status has changed and how they are coping.

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The new seventh edition of The Baby Boom: Americans Born 1946 to 1964is a definitive reference by Cheryl Russell, a nationally recognized authority on the Baby Boom. In it, Russell analyzes the demographic and spending data you need to fully understand this huge and influential generation whose top concerns are financial security, health care, and retirement.

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The new seventh edition of Older Americans: A Changing Market includes the latest statistics on the health, living arrangements, incomes, spending, and wealth of the 55-or-older age group. Because the economic downturn has hurt many older Americans, an understanding of their wants and needs is increasingly vital to both businesses and government. Older Americans tells you what you need to know about this market.

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For your convenience, all of New Strategist’s titles are available as searchable single- and multiple-user pdfs linked to spreadsheets of each data table so you can do your own analyses and create PowerPoint presentations.